Manufacturing in 2023: mitigating inflation and economic uncertainty

Posted on 10 Jan 2023 by Joe Bush

Over the last few years, the manufacturing industry has been defined by inflation, supply chain challenges and labour shortages. Unfortunately, with many industries bracing for a recession, the outlook for manufacturing in 2023 isn’t much different. Justin Geach, Master Fluid Solutions' Global Director of Marketing explains.

In a September 2022 Deloitte survey, participants named the rise in shipping costs, product issues from suppliers, logistics challenges and parts shortages as their top four concerns. Many respondents saw ongoing supply chain challenges cutting into profit by as much as 13%. And, manufacturing in 2023 looks set for similar problems.

Manufacturers cannot hope to maintain their current margins – let alone improve profit – without a strategy to mitigate risk in 2023. What will it take to bolster operations? Here’s a checklist of what to do.

Re-evaluate your suppliers

Increasing prices and delayed shipments are wreaking havoc in every industry. Once one of the most cost-effective international shipping methods, the average cost to move a 40ft container from Shanghai to the US had climbed to more than $10,000 since the start of the pandemic — something many manufacturers can no longer afford. In contrast, the average cost of moving a trailer from Mexico costs less than half that amount.

Instead of looking solely at price, consider partnering with suppliers that lower the total cost of ownership. You may find new partners that have better weathered the current situation to keep your overall costs lower or even increase your productivity. Many manufacturers are now ‘nearshoring’ their suppliers to cut down on the distance (and cost) of procurement.

Identify opportunities to diversify revenue

As many buyers tighten their budgets amid recession fears, manufacturing is seeing a slowdown that could delay recovery. To maintain – or increase – their revenue growth, manufacturers should identify new markets or industries to pivot into.

With so many companies nearshoring manufacturing, there are more opportunities for manufacturers already established domestically or in regions closer to home. Take stock of your current production capabilities, including the materials and machinery used on a daily basis, and identify other in-demand products you can easily begin manufacturing. As demand for sustainable production rises, for example, many manufacturers are pivoting into new markets simply by greening some of their processes. As McKinsey points out, offering low-carbon products can create significant revenue growth opportunities.

Develop a data strategy to control costs

Automation can dramatically increase throughput, reduce reliance on labour, and improve overall efficiency. As production becomes increasingly digitalised, you can gather data and insight into every aspect of an operation. By effectively leveraging this data, you can take even more control over your operations, paving the way for significant cost savings.

Manufacturers that have a data strategy can use analytics to more cost-effectively schedule workers and machine maintenance, predict equipment issues, and optimise inventory levels. Some AI-powered platforms have helped manufacturers cut their energy costs by 25%.

Invest in worker retention

There could be as many as 2.1 million unfilled jobs in manufacturing by 2030. Manufacturers not only need to find ways to recruit more employees, but also need to be extra diligent at keeping the employees they do have.

A 2021 survey by The Manufacturing Institute analysed why employees are most likely to stay at their current companies. Here are some of the top findings:

  • 83% stay because they enjoy the work they do
  • 68% have a job that fits with the other demands of their lives
  • 69% appreciate their company’s family-oriented culture

You can retain employees longer when you accommodate workers’ needs and create a more engaging environment. Training and re-skilling can improve employee satisfaction, even as it can help you evolve to the changing demands of the market.

Identify and reduce waste

Manufacturing operations have fluctuated in the last few years, first to follow COVID restrictions, then to address the skilled labour shortage. Many operations had to adapt on the fly to these industry shake-ups without time to consider long-term impact.

As you kick off 2023, take the opportunity to re-evaluate current workflows and look for opportunities to eliminate unnecessary steps, rearrange the shop floor for greater efficiency and otherwise streamline processes. Interview machine operators and other employees for deeper insight into where bottlenecks might be occurring. Saving time will not only improve profit margins but could also create a more harmonious work environment.

It’s also important to address any material waste that might be occurring as a result of recent changes. Go back to basics and look at key performance indicators (KPIs) like scrap rate, tool life and cutting fluid consumption. Simply upgrading to more advanced cutting fluid or practicing diligent coolant maintenance can improve most metrics surrounding material waste.

The supply chain, labour and profitability issues that have plagued the industry for the past few years will continue to make an impact in 2023, and no one is sure when systems will stabilise. Be proactive and mitigate the risks of the coming year to lay the foundation for a more resilient operation.

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